LABOR MARKET DYNAMICS under TECHNOLOGY SHOCKS: The ROLE of SUBSISTENCE CONSUMPTION

Research output: Contribution to journalArticlepeer-review

Abstract

This paper establishes new stylized facts about labor market dynamics in developing economies, which are distinct from those in advanced economies, and then proposes a simple model to explain them. We first show that the response of hours worked and employment to a technology shock-identified by a structural VAR model with either short-run or long-run restrictions-is substantially smaller in developing economies. We then present compelling empirical evidence that several structural factors related to the relevance of subsistence consumption across countries can jointly account for the relative volatility of employment to output and that of consumption to output. We argue that a standard real business cycle (RBC) model augmented with subsistence consumption can explain the several salient features of business cycle fluctuations in developing economies, especially their distinct labor market dynamics under technology shocks.

Original languageEnglish
JournalMacroeconomic Dynamics
DOIs
Publication statusAccepted/In press - 2021

Bibliographical note

Publisher Copyright:
© Cambridge University Press 2021.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'LABOR MARKET DYNAMICS under TECHNOLOGY SHOCKS: The ROLE of SUBSISTENCE CONSUMPTION'. Together they form a unique fingerprint.

Cite this